Silver prices are sharply lower today as the markets attempt to make heads or tails of Ben Bernanke’s remarks and Q&A before the U.S. House of Representatives. From what we have been able to see so far, it appears that Mr. Bernanke is talking the same type of game plan that markets have already heard. That game plan is for the Fed to remain “Flexible” in its monetary policy decisions. Bernanke has stated that the Fed could reduce or increase its bond purchases as the economic outlook dictates.
In other words, it would seem that although the Fed may feel the economy is on the mend, they want to leave themselves a back door to continue or ramp up QE just in case. It also seems that Bernanke and the Fed are very conscious of how markets may react should the tapering process begin.
Although we all know that the Fed will have to scale back at some point, for now investors remain content that the Fed will continue to boost the economy through its stimulus program. Stocks remain near record highs, and risk assets in general continue to be bought. It will be interesting to see however, just how stocks react once the inevitable day of tapering comes.
Earlier in the session, the U.S. dollar index strengthened quite a bit as the Euro fell sharply. As of this post, the dollar is now only up marginally and the Euro has recovered most of its losses. The metals markets were sold off during the Bernanke Q&A but are currently off of their lows. Earlier dollar action likely contributed to the selling in silver, and now that the dollar is easing silver is seeing some buyers come in.
Prior to today, silver prices had been trending slightly higher since the low put in at the end of June. It is too early to tell how severe the chart damage might be today. If silver catches a bid into the close it would certainly be constructive. Silver had been trying to maintain price action above its 20 day EMA at the $19.90 area but was not able to distance itself from this moving average.
Thus far today, the price action could be seen as a technical failure with additional downside to come. It is worth noting however, that a lot of today’s price action could simply be position squaring prior to and during Bernanke’s remarks. Silver remains in a consolidation pattern with the $20.00 level proving to be solid resistance on the upside. Should the market prove unable to take this level out, a re-test of the June lows may be in store. What is perhaps also a likely scenario is that silver prices continue to move sideways until there is more clarity on the Fed’s plans and the health of the economy.
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